Earnings up for retirement system, but still in the red

April 03, 2012|BY BOB MERCER, AMERICAN NEWS CORRESPONDENT

South Dakota’s public pension system is built on the assumption that its investments will return an annual average of 7.75 percent. Through the first three quarters of fiscal 2012, the growth was 3.35 percent, state investment officer Matt Clark said Tuesday.

Clark delivered the update to the South Dakota Retirement System board of trustees. He said the return through March 31 actually might be higher, in the 4 to 5 percent range, because the calculation used the Dec. 31 value of the system’s private equity investments.

If the investment return for fiscal 2012 ends at zero percent, the market value funded ratio of the system would be 96 percent, according to the system’s actuarial consultant.

That means the market value of the investments would be the equivalent of 96 percent of the amount necessary to balance the system financially over 20 years.

A return of 2.5 percent would put the ratio at 98 percent, while a 5 percent return would get the ratio to 100 percent.

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Those figures are important because state law links the annual improvement in retiree benefits to the ratio.

If the ratio is less than 80 percent, the improvement adjustment is 2.1 percent. If the ratio is 100 percent or higher, the improvement adjustment is 3.1 percent. There is a sliding scale between those points.

SDRS covers state government and state university employees, as well as employees of many school districts, counties, city governments and other local units of government.

Clark said the investments are approaching $8 billion, which he described as a big improvement from last fall.

“The bad news is that the stock market is approaching fair value. With the new quarterly updates to earnings, we show the stock market is back to within 95 percent of fair value,” he told the board.

The State Investment Council had changed the SDRS investment mix so there are minimal positions in bonds and essentially no cash, while taking maximum positions in stocks, real estate and similar investments.

“So we’ll begin changing that as we approach fair value,” Clark said.

He added that the bad news then becomes the limited opportunities to earn much while the council waits for new entry points to purchase stocks again.